A Budget is a critical tool to help you in finding personal freedom. It also helps you find prosperity. A budget is a plan of how you want to use your resources, be they time, energy, money, food or what have you. Freedom to choose means YOU decide where and how these things are spent.
Do you think a good cook will make a plan for how to use the food they have in their restaurant? Do you think a stay-at-home mom will plan how to use her abundant time and energy each day? Do you think a wealthy individual will plan how to spend his money? The answer to all of these questions is yes!
Now consider the family cook with limited weekly food, the person on chemo with limited energy, the person on a limited income. Will they plan how to use their precious resources? The answer is the same, a resounding yes!
If we compare my first group of examples who are blessed with abundant resources to my next group with limited resources, they may seem different at first glance, but they’re not. How does a cook become a good cook? With planning and experience. Why do some moms with more kids seem to get more done, even with more kids? With planning and experience! Why is a wealthy individual wealthy? Yes, planning and experience! They all learned to budget their time, energy, and money to get what they wanted: a great meal, a well-run home, and wealth. These things are all part of prosperity. You have the freedom to do the same!
Some people feel that a budget is restrictive or that it decreases their spontaneity. I would argue that when you take control of your financial resources with a budget, you build the reserve to be able to afford spontaneity.
A budget is your plan that helps you control expenditures now and create wealth with what you earn. It is also what gives you the experience to know what you can and cannot do with your current resources. This is how the wealthy control their wealth! This is something I think is critical in preserving my freedom, so let’s get started making a budget.
First off, make an appointment with yourself for about 3 hours to do this. Get your spouse involved, too, as this is important for each person to understand in a marriage.
Next, pull up receipts, statements, etc. of all your expenditures for the last 12 months. Why such a long period of time? One thing to learn about our spending habits is that they fluctuate. Utility payments go up or down with the weather. Sometimes we eat out more frequently, sometimes we have friends and family over for dinner more. Gift-giving during the holidays or for special occasions is usually sporadic. Everyone spends differently, but when you track what you spend, you get a picture of your own spending habits.
A note about credit card expenses: for this budgeting exercise, don’t put down the payment amounts. Only put down the purchases made each month and categorize them, regardless of whether you paid cash, check or credit. We will look at what your purchases have been without considering delayed payments first. We need to understand what you are buying and why to be able to get a handle on your expenses.
Once you have your information, print out this worksheet and start filling it out. If you have a spread sheet program like Excel and know how to use it, that may be easier for you to enter the data there. The point is to get all your information together in a way that is useful. You can see that we have different categories for each expense. Pages 1-2 have basic information, but you can print pages 3-4 additionally to get room for more categories if you want them. You can keep a running total of the expenses in a category for the month. For example, add up all the grocery receipts for May and enter the total for groceries that month on the sheet. Continue with each month and each category that pertains to you until you get all your information entered.
Okay, at this point you should have a lot of information categorized. If you are struggling with categorizing something, really think about what kind of expense it is. I find that I want to lump expenses spent solely on myself as miscellaneous. That can be a huge category. Was it an educational expense? Was it clothing? Was it for entertainment? Make your own categories as needed; it really helps you understand your needs and wants, as well as your habits.
Add up each category for a month and put the total at the bottom. Add up the categories for the past 12 months and divide by 12 to get the average expenses in each category for a month. Now hit the save button, put the pencil down, stand up and take a break. Stretch, step out into the sunshine, have a snack. You’ve just done the hard part. Next comes the fun part, telling your money what to do!
Now that you have listed your expenses for the past 12 months, Part II of this article shows you How to tell my money what to do! Click the link to go there next.
Take the Challenge… What are your expenses? It’s time to list it all out. This link has a form to print out that will help you see your total expenses for the past 12 months. Once you have everything listed, move on to the next part of this article to find out how to make your budget work for you!
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